Sprinting Out of the Gate With Little Slowing Down On the Horizon: PharmaCann LLC

Sprinting Out of the Gate With Little Slowing Down On the Horizon: PharmaCann LLC

After The Compassionate Use of Medical Cannabis Pilot Program Act went into effect in January of 2014 in Illinois, Teddy Scott, founder and CEO of PharmaCann, a Ph.D. in molecular biophysics and a registered patent attorney in the law firm Polsinelli, where he focused on intellectual property issues, began discreetly working with a partner to craft a plan.

He wanted to raise capital and pursue cultivation and dispensary licenses in the state, eventually coming up with $20 million, primarily from investors from the Chicago commodity exchanges.

He was motivated by the belief that the nascent cannabis industry had a drastic need for professionalism.

By mid 2014, almost no one in the firm was aware of what Scott was up until he showed the schematics of a cultivation facility to a friend and colleague, career prosecutor Jeremy Unruh, one of the firm’s litigators who had cut his teeth at the firm trying cases in healthcare, financial services and product liability.

Recognizing the need for understanding what would be a highly regulated industry in Illinois, Unruh threw his hat in the ring to be part of the a newly formed entity. Unruh took a position as general counsel and chief compliance officer and, along with a third member from the firm, prepared for the results of their applications for three cultivation licenses (the maximum allowed in Illinois) and five retail locations licenses.

In February, 2015, the team was notified that they had won two cultivation licenses and four retail licenses. So on March 1, 2015, PharmaCann was officially launched.

They immediately began the buildout of two cultivation facilities, with a target date of late June/early July 2015 to become operational, and a projected product distribution to their retail locations and others by late 2015. As they broke ground in Illinois, the team decided to pursue one of five medical marijuana licenses and four retail locations in New York that would require a very fast turnaround if awarded.

After creating their number one rated, 40,000-page application, they were awarded their second big win in July of 2015 when they were notified that they had indeed won those New York licenses. They immediately began the rapid process of being operational by January, 2016 as mandated by the New York program.

The leadership team’s biggest strength was also their biggest weakness. Scott and Unruh were both smart guys, and, as Unruh told me, “good generalists,” but they had little operations experience, and no experience running a vertically integrated cannabis company. They had gotten through the initial build and grow phase with the help of their original operations hires, but quickly outgrew their lack of cannabis experience.

So as a result of the demands that both of the wins placed on their new organization, recruiting and hiring became their number one priority. The team filled their operational void, hiring a team of experienced professionals led by Sue Mullin, their director of human resources, who joined PharmaCann in late 2015. The New York licensing pharmaceutical approach was very different than the Illinois model, so Mullin’s ability to identify the specific needs of the two programs and develop an organizational chart was crucial.

The talent acquisition effort began in earnest when, in April of 2016, they reached out to the pharmaceutical community and added Brendan Hersey, who spent eight years at DuPont Pioneer as director of cultivation; Chris Atkinson, strategic project manager, who became the company’s chief of staff; and then in July, hiring Chris Dirio as the company’s director of research and development, who had worked at Pfizer and Capsugel for the previous 15 years.

Also in July, the team hired Brett Novey as director of finance to continue their capital build; and in September, they hired Mike Chodil as director of operations.

With an infrastructural back office in place, PharmaCann has been working diligently since raising the additional capital needed to build out its production and retail facilities (they have raised $100 million to date which includes a real estate sale/leaseback deal they negotiated in New York earlier this year).

They also succeeded in winning additional lucrative retail licenses in Maryland (one in Bethesda, Maryland) and Pennsylvania (three storefronts in Philadelphia), plus the acquisition of a grow and dispensary license in Massachusetts.

And they aren’t finished yet. Unruh tells me that the company has applied for a license in Ohio, and they are pursuing licenses in Florida. They have an option on two additional licenses in Massachusetts.

They have ramped up hiring, with over 160 employees currently on board and an estimated 200 by year-end. Unruh expects that revenue contribution will be roughly equal in 2017 between the active Illinois and New York operations.

As a private company, PharmaCann doesn’t share revenue figures. But that being said, they tell Cannabis Business Executive that New York and Illinois revenue is growing at 20 percent and 10 percent rate per month respectively.

In Illinois, they not only supply their PharmaCannis (PharmaCannis is PharmaCann’s dispensary name) grown and extracted product to their retail stores, but also distribute through other retailers as well. They also buy product from other wholesalers like Cresco Labs for their retail outlets.

Currently PharmaCannis sells flower, waxes, shatter, concentrates, oils tinctures and capsules, and is exploring relationships with edible companies as well. Private labeled products are on the drawing board as well.

The New York market looks very different under state law, with flower not currently an option and with all retail locations required to have a licensed pharmacist on site for medicine distribution. PharmaCannis currently use a Waters supercritical CO2 machine and are in the process of incorporating a high volume, NuAxon Tech extraction machine to meet increasing demand.

PharmaCannis is also updating the extraction facility and adding a state-of-the-art kitchen in Illinois, with plans to develop a wholesale, private label brand to sell to other retailers in state.

The state has looked for ways to increase patient counts in New York and have added chronic pain to the list of conditions for which a doctor can write a prescription. A new bill is pending for doctor recommendations, while New York’s patient count has surpassed Illinois.

They have also incorporated home delivery into the mix – PharmaCannis recently began delivering in the Bronx.

The original sprint to get product to patients in New York and Illinois didn’t come cheap. It required a lot of on-the-job training for the management team. They didn’t know how much they didn’t know before the race began, but they have worked diligently to correct mistakes, some that couldn’t be avoided due to the tight and rigid requirements set by overzealous regulators.

But PharmaCann has done a lot of things right. They are well capitalized, they have also built out one of the larger human resources departments that I have come across covering the industry.

They have smartly leveraged their real estate. Their building team, from architects to construction project managers, have performed admirably under short deadlines. And being well capitalized has allowed them to prepare scalable internal processes for future growth that are flexible enough to accommodate the nuances of each of the markets where they have won licenses.

With a stated goal of being THE LEADER in medical marijuana and care, PharmaCann has built a solid base in two of the most heavily populated states in the country, and is well on its way to rounding out its portfolio of operations in the lucrative northeastern U.S. market. But there is lot to do as they continue their rapid expansion and execution will be the key to success.

Current Number of employees: 160 presently. More than 200 by year end.

Market Strategy/Goal: To be the leader in medical cannabis innovation and care. 2015 Revenues: n/a

Company/Revenue Mix: All revenue is derived from the sale of cannabis products, its accessories, or associated management fees. Will be roughly 50/50 Illinois and New York by year end

Expansion Plans

Ohio (license application pending)

Massachusetts (two existing licenses with two more available)

Florida (application anticipated in early August)

Financing strategy: PharmaCann LLC has conservatively raised capital through a wide range of strategies, including equity and convertible note investments. The company plans to continue to expand on its strategies as markets open up and capital needs arise from expansion opportunities.